Question

One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is calleda. price-change neglect.b. unmeasured quality change.c. substitution bias.d. relative bias.

Answer 1

Answer:

Letter c is correct. Substituition bias.

Explanation:

Substitution bias is characterized as a problem regarding the price index of a particular good, as consumer behavior can be changed relative to the price of a particular good by changing its consumption from a more expensive product to a cheaper substitute product.

The concept of the substitution bias problem relates to consumer choice theory, which is a macroeconomic theory that describes consumer purchasing decisions and how changes in the environment influence their decisions.